Why That $400 Million Harvard Gift Isn’t Completely Crazy

Harvard, the wealthiest school in the country, just landed $400 million for its engineering and applied sciences school, the latest in a string of huge gifts. It sounds crazy (and it kind of is) to give that much to Harvard, but it’s more strategic and likely to be more impactful than critics give it credit for.

Whenever Harvard gets one of these huge gifts, people get really upset. Malcolm Gladwell is among those piling on ridicule. Critics say not only that this isn’t the best form of philanthropy, but that it is the absolute worst form of philanthropy, that it flat out isn’t philanthropy, that it’s immoral, that Paulson has “a plaque in philanthropist hell.”

I get the outrage. When you see a number like $36 billion, the last count on Harvard’s endowment, and then see a number like $400 million followed by the word “gift,” it stirs up some of the anger people are rightfully feeling regarding income inequality in this country. The fact that the latest benefactor is John Paulson, who is most famous for getting rich by betting against the real estate market prior to the 2009 collapse, certainly doesn’t scream altruism.

I agree with many of their points about the disproportionate wealth among America’s elite institutions compared to more inclusive schools (for the record, I went to the University of Arizona on student loans). But it’s also a mistake to characterize philanthropy to Harvard or other top research universities as immoral just because they operate with large endowments. Are there better philanthropists and better causes? Sure. Is this the worst possible, most immoral cause? Come on.

I think one of the big misconceptions is the “pile of cash” argument. There’s this sense that Harvard is hoarding money, so it never really needs anything and any gifts are pure waste. As if Harvard administrators are sitting around lighting cigars with hundred dollar bills and then a rich alum just spontaneously dumps a bunch more onto the pile, and they barely notice.

In reality, the endowment exists to produce annual revenue, which pays for a percentage of the school’s budget, along with a combination of government grants and tuition. It’s not a big pool of money that can be used for whatever the university wants. Depending on how protective endowed universities are of their funds, so follows financial stability or budget cuts.

When people make these gifts, it’s not because they are stupid or evil (at least not related to this), or stumbled onto a silly way to get a tax break. It’s because Harvard, since at least 2011, has been fundraising like crazy to make sure it (a) never has to panic like it did after losing almost 30 percent of its endowment in the 2009 crash, and (b) can expand in the future without spending down its endowment. It’s strategic fundraising so that the school can do things it couldn’t do otherwise. The campaign is aiming to raise $6.5 billion that will mostly go toward capital projects, financial aid, teaching, and research.

Let me underline that last word, research. America's top research universities play a crucial role in driving innovation and national competitiveness, but public research dollars for scholars within these places have been falling. That's a major problem.

And here we should take a look at what the Paulson gift actually goes toward. It’s not gold-plated statues of John Paulson. The $400 million will help endow the School of Engineering and Applied Sciences (SEAS), which took its current shape in 2007. Its endowment in fall 2014 was just under $1 billion, and the school is undergoing major expansion.

Since 2007, faculty has grown 30 percent, enrollment 150 percent. It’s added new majors such as biomedical engineering and new master’s programs. With more funding, it will consolidate to a central location as the anchor of a satellite science campus across the river in Boston. It’s expanding lab facilities, hiring more faculty, competing for dwindling federal research dollars. SEAS deals with a wide range of topics, including research on climate change, cancer treatments, drug therapies.

This is a growing and high-demand area. To say that a gift to support this is bad is to say Harvard either shouldn’t expand this school, that it won’t offer a public good, and/or that Harvard should only make such an expansion by spending down its endowment or cutting other budgets.

I don’t think those things can be taken at face value. At least, the issue is more nuanced than saying that Harvard has a ton of money and only serves the wealthy, so people should never give it more money.

All of that said, there are huge inequality issues in higher education. Public schools are losing funding, and higher education as a whole is looking more toward philanthropy to cover expenses and keep up with growth. USC and Stanford have their own huge fundraising campaigns, and private giving to U.S. colleges is at an all-time high. There’s a big question about how to ensure the tax breaks associated with these institutions and gifts are sufficiently serving the public good. We'll be giving more attention to the question of the public benefits from charitable tax expenditures in coming months, and this gift raises that issue in a stark way, since the U.S. Treasury—and we taxpayers—are effectively kicking in millions here, too.

It’s all reminiscent of another big gift that good old John Paulson made—one for $100 million to Central Park. There are concerns that Central Park is too well off while other parks in the city suffer. There's been talk of making large park conservancies share a portion of private windfalls with parks in greater need, which makes a lot of sense. Again, these are questions we've been giving attention to.

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Maybe in order to keep their tax savings, gifts like Paulson’s and endowments like Harvard's should have to demonstrate a base level of spending for the public good, or enroll a minimum percentage of students who are in need. Or maybe the tax breaks should be restricted to subsidize public education. Certainly, these are legitimate questions to be asking in an age of fiscal austerity and big unmet needs.

All of this is to say that, yes, inequality in funding for education is a problem the country needs to reckon with. But it's a leap to say that donors shouldn't be giving to schools like Harvard to embark and expand on important work, or that this giving is a waste.